The Benefits of Refinancing
1. Tap into your equity
2. Lower your Interest rate
3. Lower your monthly Payment
4. Reduce your capital gains taxes
5. Take a trip and celebrate
6. Secure Financing for your Business
7. Pay-Off tuition and/or medical expenses
Record-low interest rates have millions of Americans considering refinancing their mortgages.
Here are 7 things you need to know if you want to refinance today.
Credit Score: Those "easy-qualifier" loans that used to be available are long gone. If you want a good loan, you need a good credit score. The best deals are reserved for those with scores of 740 and above. Any lower than that, and you'll start running into hurdles. Since there are non-refundable up-front fees and other expenses that comes with buying a home, you shouldn't apply unless you are certain that you can qualify. The best way to find out what your accurate credit score is and what you could qualify for, talk to your local lender!
Equity: The biggest challenge to refinancing is equity. Equity is the value of the home, minus any loans against it. You can get a guesstimate of your home's value at real estate sites, such as Zillow.com. Zillow's "Zestimates" are not appraisals, but they are likely to give you a good idea of the value before you try to refinance.
Income-to-Debt Ratios: To qualify for a refinance, your new mortgage payment, including taxes and insurance, should amount to less than 30% of your gross monthly income. Additionally, your total debt payments (including car, credit card and student loan obligations) should amount to less than 40% of gross income. (Gross income is the total amount you earn, before income taxes and other deductions are taken out.) You'll have to provide documents, including tax returns and pay stubs to verify that your gross income is what you say it is, too.
Liens and Seconds: Something else that can disrupt your refinance are second mortgages. Refinancing pays off your first mortgage, putting the holder of your "home equity line of credit" first in line to be repaid. For a refinance to go through, the HELOC lender must agree to "subrogate" its interest, essentially moving back to second-place in the repayment order. And lenders are getting reluctant to do that in today's market where so many banks have lost so much to foreclosure, he said.
Timing: You can get an even cheaper loan if you're willing to go with a hybrid Adjustable Rate Mortgage that offers a fixed rate for five years. The catch: If you're going to stay in the home for more than five years, you could face significantly higher interest rates and monthly payments in the future. These cheap 5/1 ARMs could save you thousands if you move or repay the loan before the fixed period is up, but only consider them if you're certain you can do that and are able to handle the risk if you don't.
The APR: Want a lower rate, and therefore a lower monthly mortgage payment? You can probably get it by paying higher fees. But that's not necessarily a bargain. Lenders consider rates and fees to be at the opposite ends of a refinance teeter-totter. If you want one to come down, the other is likely to go up.
Lower Payments Don't Always Equal Lower Costs: Even if you cut your mortgage payment and interest rate, you might end up paying more overall if you stretch out the repayment terms.
Call or message us, The Frater Team (UR1LocalLender), to find out exact information about refinancing! Use the contact form below or reach out on social media!
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